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Is Nothing Sacred Anymore? Maybe Not

July 31, 1994

Government

IS NOTHING SACRED ANYMORE? MAYBE NOT

Slowly, reluctantly, but inexorably, the political system is zeroing in on federal programs that, until now, have been considered untouchable. Not long ago, terrified lawmakers would not even talk about cutting spending for programs such as Social Security, Medicare, and Medicaid. Now, the House is taking votes on ways to curb these and other entitlement programs, and a Presidential commission is looking at serious long-term cuts. At the same time, Washington is starting to turn its attention to another corner of government that has been growing uncontrollably, the 140 subsidies that litter the Internal Revenue Code--subsidies such as the home-mortgage deduction.

Under heavy pressure from a cadre of Republicans, rogue Democrats, and newly elected deficit hawks, the House is considering ways to impose an overall cap on the total cost of mandatory spending programs. Later in the summer, it will vote on proposals to cut specific benefits for current and future retirees.

STARK CHOICES. Health-care reform has put the rising cost of Medicare and Medicaid on the front burner as well. In the midst of all the jabber about "soft triggers" and "health alliances," Congress is facing stark choices. Some versions of health-care reform would expand Medicare. Others would create new entitlements--for small business, for instance. Still others would slash Medicare spending by tens of billions of dollars. Privately, many lawmakers admit they will be unable to finance universal coverage without cutting reimbursements for doctors and increasing premiums for wealthy pensioners.

The White House-chartered Bipartisan Commission on Entitlement & Tax Reform also is turning up the heat on entitlements. That group, chaired by Senators Bob Kerrey (D-Neb.) and John C. Danforth (R-Mo.), hopes to have specific recommendations by yearend on ways to reduce entitlement spending, curb tax breaks, and overhaul the tax code. The goal: to reduce the deficit and raise national saving.

POLITICAL SUICIDE? Of course, spine implants in a few politicians don't mean Washington will change overnight. While many Democrats back cuts in tax subsidies, Republicans insist they won't even discuss the issue. At the moment, the Kerrey Commission is struggling just to define the problem it's wrestling with. And the anti-entitlement amendments in the House won't become law any time soon. But something important is happening. What was unmentionable five years ago is now being debated all over Washington. "It's been the conventional wisdom that even discussing these topics is political suicide," says Representative Christopher Cox (R-Calif.). "The commission has already demolished that taboo."

Why are all these lawmakers suddenly willing to march into the lion's den? There is only one reason: They have run out of places to cut big bucks from federal spending. Since 1990, they have raised taxes and cut planned spending by a staggering $1 trillion. In fiscal 1995, the deficit is expected to fall below $200 billion. But starting in 1997, it will begin heading back up, largely because the cost of entitlement programs is about to explode. "Now," says Martha Phillips, executive director of the Concord Coalition, an antideficit group, "people have realized that entitlements are the key to deficit reduction."

Some startling numbers show why. Collectively, entitlements such as Social Security, Medicare, and Medicaid--as well as welfare, farm subsidies, and veterans' benefits--will cost the federal government over $800 billion this year, more than half the budget. The tax breaks--"tax expenditures" in budgetese--will cost the Treasury $400 billion in lost revenue, cutting the total tax take by one-third.

BOOMER BUSTERS. The present situation is worrisome enough, but the future looks horrendous. Within a couple of years (chart, page 74), the government will be spending more money on pensions and health care for the elderly than it does on national defense, education, crime prevention, national parks, and everything else combined. Twenty years from now, when the first baby boomers start retiring, every cent the government is expected to collect in taxes will go just to entitlements and interest on the debt. "The arithmetic is inexorable," says Federal Reserve Board Chairman Alan Greenspan. "It is something we just cannot push under the rug."

While the fiercest resistance to change comes from today's pensioners, they are not the ones really threatened. Current retirees will almost surely enjoy solid benefits throughout their lifetimes. The real impact will be on baby boomers, and they're not yet paying attention. That presents an opportunity for deficit hawks. Says Allen Schick, a professor at the University of Maryland and a budget specialist: "People won't let you take away a benefit at the brink of their retirement. But the boomers are not yet agonizing about it. That's the window to slice benefits."

It is finally dawning--albeit slowly--on the political Establishment that if entitlements have to be tackled, better now than when the boomers wake up. That's why entitlement cuts are coming--and sooner than anyone ever imagined.Howard Gleckman in Washington